(Bloomberg) — Stocks in Asia were set to follow a drop in US benchmarks after comments by two Federal Reserve officials that they were considering 50 basis-point interest rate hikes to battle persistently high inflation.
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Contracts for equity benchmarks in Japan and Australia fell while those for Hong Kong were little changed. The S&P 500 Index lost 1.4% and the Nasdaq 100 sank 1.9%, while the yield on the benchmark 10-year Treasury surged to the highest level this year.
Federal Reserve Bank of Cleveland President Loretta Mester said she had seen a “compelling economic case” for rolling out another 50 basis-point hike, and St. Louis President James Bullard said he would not rule out supporting a half-percentage-point increase at the Fed’s March meeting, rather than a quarter point. Their warnings came after US producer prices rebounded in January by the most since June.
Further US data on Thursday added to the bearish mood, with new home construction retreating for a fifth month in January as elevated mortgage rates continue to keep a lid on housing demand. Weekly jobless claims fell to 194,000, below expectations of 200,000.
“You will not sustainably get to 2% inflation when you have a labor market that is this tight,” Steve Chiavarone, senior portfolio manager and head of multi-asset solutions at Federated Hermes, said by phone. “It is so completely out of whack.”
Investors have been upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing past 5.2% in July, according to trading in the US money markets. That compares with a perceived peak rate of 4.9% just two weeks ago, and the central bank’s current 4.5% to 4.75% target range.
Australian bond yields rose, following the moves in Treasuries. Group-of-10 currencies were little changed in early trading in Asia after a gauge of dollar strength ended Thursday off its intraday highs.
The Chinese yuan declined for a 5th straight day in both onshore and offshore trading, posing its longest losing streak this year.
Bitcoin optimism continued as the cryptocurrency briefly topped $25,000 for the first time since August as traders’ fears of a US regulatory crackdown abated.
In commodities, oil was little changed as investors weighed evidence of higher energy demand in China against a large increase in US crude stockpiles. Natural gas in Europe is falling toward a key level not reached since November 2021, gold was steady, while copper reached a four-week high in London.
Some of the main moves in markets:
Nikkei 225 futures fell 0.6% as of 7:24 a.m. Tokyo time
Hang Seng futures rose 0.2%
S&P/ASX 200 futures fell 0.2%
S&P 500 fell 1.4% on Thursday
The Nasdaq 100 fell 1.9% on Thursday
The Bloomberg Dollar Spot Index rose 0.1% on Thursday
The euro was unchanged at $1.0674
The Japanese yen was little changed at 133.95 per dollar
The offshore yuan was little changed at 6.8710 per dollar
The Australian dollar was little changed at $0.6878
Bitcoin fell 0.7% to $24,372.2
Ether fell 0.5% to $1,674.25
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Isabelle Lee and Emily Graffeo.
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